The Chinese Scandal Gets French Milk to the Boiling Point

While the Chinese dairy industry argues with judicial courts in the tainted milk case that sickened close to 300,000 infants –– and probably caused the death of six of them –– the events that occurred in China are also impacting the dairy industry worldwide, and notably the French dairy industry.

Because it faced a price downward trend that hurt producers for the past several months, the French dairy industry is now experiencing a difficult situation that can be tied to the confidence crisis generated by the discovery of melamine in Chinese dairy products. The significant decline in milk consumption in Southeast Asia –– in Japan and the Philippines in particular –– compelled New Zealander manufacturers to abruptly redirect their exports to other markets, in particular those served by French export. Confronted with this new challenger, French companies were thus forced to renegotiate contracts and lower delivery prices, as reported in the French business daily Les Echos1 in the case of Algeria for which a 10% cut was applied.

In this context of lowering prices, the negotiations to draft a new inter-professional fixed index for milk prices –– as stated in the December 1, 2008 agreement between manufacturers, cooperative groups and producers –– look like they will be difficult and foreboding for the future. In fact, they run the risk of first affecting future milk production and then intensifying price volatility when tensions on demand stabilize.

1 Les Echos, January 8, 2009, “The Dairy Industry Faces a Downward Price Trend”